FQHC not entitled to full reimbursement from MCO

By Lindsey Firnbach, J.D.

A decision that the Texas Health and Human Services Commission (Commission) violated the Medicaid Act was reversed and remanded by the Fifth Circuit Court of Appeals because the Act does not require that the Commission demand reimbursement from managed care organizations (MCOs) to federally qualified health centers (FQHCs). Additionally, the Medicaid Act does not require that FQHCs be reimbursed for non-emergency out-of network services (Legacy Community Health Services, Inc. v. Smith, January 31, 2018, Smith, J.).

Background. Legacy Community Health Services (Legacy), an FQHC, sued the Commission after it was denied reimbursement for claims it presented to the Texas Children’s Health Plan (TCHP), an MCO with which it had previously been in contract. States can contract with MCOs, which serve as the middleman between the state and FQHCs; the state provides funding to MCOs and in turn, MCOs distribute reimbursement to FQHCs. If a contract does not exist between the MCO and the FQHC, the MCO is only required to provide reimbursement for emergency treatments. The state can provide FQHCs with a "wraparound" payment in the amount of the difference between the PPS amount and what the MCO pays. After Texas removed its wraparound policy, Legacy incurred increased costs and the contract between Legacy and the TCHP was cancelled. Thereafter, TCHP refused many claims on the grounds they were either unauthorized or nonemergency. Legacy sued, arguing that the policies of the Commission were a violation of the Medicaid Act.

The district court granted summary judgment in favor of Legacy, finding that the Commission violated the Medicaid Act when it made MCOs responsible for FQHC reimbursement (see Health centers must be reimbursed, even for out-of-network services, September 6, 2016). It reasoned that the Commission erred by not having a policy that requires the state to reimburse in the absence of full reimbursement by the MCO, and the lapse of a requirement for the reimbursement for nonemergency, out-of-network services.

The claims. The appeals court ruled that the language of the Medicaid Act did not prevent the Commission from requiring MCOs to fully reimburse FQHCs, nor did it require that Legacy be reimbursed for all services. The language of the statute only required that payments be made for any shortfall, but not that states could not require MCOs to pay the full rate. Additionally, the language indicated that only emergency services are required to be reimbursed by MCOs; if the statute required states to reimburse all out-of-network services, there would be little incentive for MCOs to contract with FQHCs.

Dissent. The dissent agreed with the outcome of the decision, but argued that instead of ruling that Legacy could not demonstrate on the merits that the Medicaid Act did not allow the Commission to make MCOs reimburse the FQHCs, summary judgment was not proper because Legacy could not prove standing. To the dissent, Legacy failed to present an injury, and merely stating that there is an injury based on the breach of contract was not sufficient.